The Affordable Care Act seems less and less affordable and hardly easy to administer. When you add taxes, it can be like lemon juice in a paper cut. Yet some people can avoid some of the tax hits or minimize their impact.
One of the biggest tax hits for individuals is the net investment income tax. It’s a new 3.8% tax to help pay for Obamacare, there’s a new 3.8% tax. Actually, it applied in 2013 too, but you may not have noticed. It’s an add-on to other taxes you pay. A 20% long-term capital gain becomes 23.8%. The 3.8% rate applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds a threshold based on your filing status. For single or head of household, it’s $200,000. For married filing jointly it’s $250,000.
If you owe it, you must file Form 8960. If you had too little tax withheld or did not pay sufficient estimated taxes, you may have to pay an estimated tax penalty. The IRS website has details here. You can also check out the IRS’s questions and answers on the Net Investment Income Tax. If you want even more, see IRS Tax Topic 559.
Can you avoid it? It’s hard to do if you have investment income and meet the income tests. There is still some ambiguity in the application, and still some kinds of income that escape–or arguably escape–the 3.8% tax. Besides, it will be a while before the IRS is geared up to fully interpret this new law.
Another tax hit is the heath insurance penalty. There’s a ‘mandate’ requiring most Americans to carry insurance: If you don’t you may face a penalty. For 2014, the penalty is the higher of $95 per adult and $47.50 per child, or 1 percent of taxable household income. In 2015, the penalty goes up to the higher of $325 per adult and $162.50 per child, or 2 percent of household income.
Read the full article here.
Contact Steven G. Cosby, MHSA with questions or to request more information and to schedule a healthcare plan evaluation, savings analysis or group plan solution for your company.
